the new normal in asia

A National Bureau of Asian Research series exploring ways in which the Covid-19 pandemic might shape or reorder the world across multiple dimensions

Will Xi Jinping’s Strongman Rule Leave China Weaker after the Pandemic?

William C. McCahill Jr. July 18, 2020

Some pandemics have changed the direction of history. Others have shifted history’s gears. In the fourteenth century, bubonic plague decisively turned European history by reordering established economic, political, and religious power, even if the new order took decades, if not centuries, to fully manifest itself. In China’s recent history, the Manchurian plague of 1910 gave a final nudge to the already debilitated Qing Dynasty, pushing it toward collapse the following year.

The Covid-19 pandemic will not immediately bring the demise of the current Chinese Communist Party (CCP) regime. Indeed, in the near term it may well help tighten the regime’s authoritarian grip on the Chinese people. The party-state under General Secretary Xi Jinping continues to reverse the “reform and opening” policies that have brought China the 40 most prosperous years of its modern history. By shifting successful policies into reverse, Xi has weakened his regime on at least four counts: governance, economic growth, social cohesion, and international reputation. Although Xi’s strongman rule seems secure for the moment, the pandemic has accelerated all four trends. As the pressure on him grows, Xi and his lieges may be tempted to take rash action to preserve their power.

William C. McCahill Jr. is a senior resident fellow at the National Bureau of Asia Research (NBR). Before joining NBR, he had worked in Hong Kong and China as the senior adviser for China at Mirabaud & Cie. and earlier in a similar capacity for Religare Capital Markets. A 25-year Foreign Service career preceded his business activities, including posts in Hong Kong, Taiwan, and Beijing. The New Normal in Asia

Governance in the central bureaucracy and its line ministries, authority has become increasingly concentrated in From the outset of his term in 2012, Xi Jinping “the leadership core”: decisions must wait on Xi or has pulled decision-making away from government his intimate courtiers. agencies and institutions, beginning with the State Council. Premier Li Keqiang, the nominal head of Thus, when the coronavirus outbreak first government, has been marginalized, and Xi has erupted in Wuhan in early January, the authorities instead arrogated power to party organs that he in Beijing tarried a full fortnight before they controls and to himself personally. imposed draconian quarantines on Wuhan, Hubei Province, and then much of China. The delay cost Even as Xi was consolidating power by remolding countless Chinese (and foreign) lives, sank China’s China’s governing institutions around himself, and the world’s economy, and showed the frailty he began wielding a far sharper tool: the scythe of a decision-making process that turns on a single of an “anticorruption” campaign. The campaign person. Had China’s vaunted alarm systems installed gradually turned its sights from pursuing financial after the 2003 SARS epidemic actually worked, this irregularities and moral turpitude to policing year’s pandemic might have been contained in its ideological orthodoxy and, above all, cadres’ loyalty first phase. to Xi. This shift of emphasis made clear that the campaign was in its essence a political purge. It settled scores with those who would have impeded Economic Growth Xi’s ascension to the party throne, eliminated potential rivals, and broke up party factions Xi Jinping has turned back the clock on Deng inimical to Xi’s interests. The anticorruption Xiaoping’s attempts to revitalize the Chinese agencies have become permanent fixtures in the economy by opening it to foreign trade and party-state bureaucracy. investment and by encouraging private enterprise. On the theory that bigger must be better, Xi’s reshaping of the party-state institutions and state-owned enterprises (SOEs) in steelmaking, his anticorruption campaigns have had, as one shipping, shipbuilding, and other heavy industrial might expect, an intimidatory effect on the CCP sectors have been recombined and then swallowed rank and file as well as government employees. Xi’s smaller state companies. When Zhu Rongji left the governance style has slowed decision-making at post of premier in 2003, he foresaw the number all levels of the bureaucracy and stifled what little of central government-owned SOEs shrinking initiative cadres might once have had to suggest in five years from around 180 firms to around policy solutions to policy problems. Meanwhile, 15, all operating in national security areas like

Of all their concerns for the post-pandemic economy, CCP leaders worry most about employment.

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telecoms and energy. Today, there are still around of the economy; and local governments depend on 100 “central SOEs,” the total having been reduced land leases to fund their own operations. But the chiefly through reconsolidation. There seems little major property developers themselves have heavy economic sense in this retrogression: SOEs employ debts, including U.S. dollar–denominated debt to millions of people, but they account for no more foreign banks. Debt levels in the economy continue than a quarter of national output and suck up 80% to rise and could constrain future government of bank credit. Many would be bankrupt by any Big spending. Foreign observers estimate overall debt Four accounting definition. In drawing an outsized at about 310% of GDP, although some independent quotient of bank loans, SOEs crowd out nimble, Chinese economists, trying to account for disguised job-creating private firms. SOE and state bank nonperforming loans, put the figure much higher. Xi’s industrial policies, however, may be less about economics and more about politics—CCP While last year’s alarms about local and politics, that is. For even as he builds a Jurassic Park provincial government debt have gone silent, the of SOE dinosaurs, Xi has been explicitly tightening People’s Bank and Finance Ministry continue to party control of both state- and private-sector voice concern about indiscriminate bank lending. companies. In the state sector, including SOEs listed There also appears to be jitters over the value of in Hong Kong, company articles of incorporation China’s foreign exchange reserves, as those might have been revised to show the companies’ party need to be deployed (despite inflation risks) to secretaries as the chief decision-makers. These cushion against further shocks from the world companies’ executive ranks have been shuffled so economy. Even as it aims to repatriate foreign that Xi loyalists have taken the top jobs. C-suites assets, the central bank has been tightening mean Communist Party suites. In the private sector, controls on foreign-exchange outflows. As one analogous, though less overt, changes have occurred, sign of this new stringency, across the Yangtze with party committees now widely installed in both Delta teachers, retirees, and others accustomed Chinese and foreign firms. to foreign travel have been forced to turn in their passports to their work units’ party secretaries. With state banks disbursing 80% of their loans to state companies, and the private sector still starved Of all their concerns for the post-pandemic for credit, it is no surprise that Beijing’s fiscal and economy, CCP leaders worry most about monetary stimuli for offsetting the Covid-19 blow to employment. Rightly so, for keeping people at work the economy should rely heavily on the state sector. and earning an income determines both economic Previous efforts to reduce SOE and local government growth and social stability. Official statistics claim debt have been abandoned. New central government that first-quarter GDP contracted 6.8%, a risibly low funding mandates yet more infrastructure figure for an economy in which hundreds of millions development. To the traditional “rails, roads, and simply went home and stayed there. Lockdowns and rebars” projects have been added higher-tech local quarantines effectively halted most movement modules like 5G buildout and a nationwide electric of people and goods through the economy. So it is vehicle–charging network. small wonder that an estimated 80 to 100 million people remain out of work, perhaps more if one Criteria for bank lending have been loosened, tallies migrant workers who reported to factories nominally to aid the private sector, although only to be laid off when the factories closed again for anecdotal evidence suggests that smaller firms have lack of orders. yet to benefit. Property developers have been helped, of course, as real estate remains the strongest driver

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Further darkening China’s economic outlook are episodes of “struggle.” Amplifying the effects of the demographic clouds of a fast-aging population mass mobilization against the pandemic has been and a shrinking workforce. China has in fact become the surveillance panopticon installed across Xi’s old before it became rich. Xi had planned to celebrate China. Tested first against the Muslim Uighurs in 2020 as the year when China fulfilled the party’s Xinjiang, the techniques—and ubiquitous CCTV promise of giving Chinese citizens “a moderately cameras, facial recognition technology, artificial well-off society,” but the pandemic has only created intelligence, and QR codes—have allowed police new challenges for achieving this goal. and other authorities to track citizens’ behavior and movements as never before. The technologies enable the regime to learn a great deal about its subjects. Social Cohesion Moreover, the regime’s controls on information The Covid-19 pandemic has also exposed the allowed the coronavirus to spread rapidly through fissures in Chinese society between rich and poor, Wuhan, in surrounding areas, and, soon enough, urban and rural, and coastal and interior provinces. throughout the country, wherever people had These divisions are not new but have been growing traveled from Wuhan in January ahead of the Lunar for at least two decades. Former premier Wen New Year holiday. Well-known is the story of the Jiabao memorably identified them in his addresses young ophthalmologist Li Wenliang, who detected a to the National People’s Congress and called them “novel SARS-like coronavirus” in patients in Wuhan “unsustainable.” Despite lip service from Xi Jinping, in late December and early January and through little has been done since Wen left office in 2013 to social media alerted fellow physicians to the virus. ameliorate these persistent imbalances. Censors caught Li’s messages, and local police As lockdowns and quarantines fractured China detained him and forced him to confess to passing into shards of a mosaic, many migrant workers unauthorized information. Had Li’s warnings were stranded far from their homes and bereft been heeded and the Wuhan authorities shared of any income. Tales of this lumpenproletariat information with the public, the pandemic might sheltering under highway bridges or in empty well have been stopped before it started. lots filled Chinese social media, and many faced When Li himself later fell ill and died of the virus, discrimination in the cities where they had been the Chinese public burst the censors’ dams with stuck. When, with Covid-19 spreading, police, outrage at the party-state regime, its manipulation “neighborhood committees,” and self-appointed of information, and apparent disdain for its citizens’ vigilantes were deployed to enforce quarantines, health. The censors required a full ten days to bring their tactics recalled all too clearly previous

Amplifying the effects of mass mobilization against the pandemic has been the surveillance panopticon installed across Xi’s China.

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these public expressions back under control, and constitution, ensuring its sanctity and plentiful they then began promoting their own narrative, state funding. which eventually transmuted Li into a “revolutionary To complement BRI, Xi led efforts to establish the martyr” for China. But the popular outburst had Asian Infrastructure Investment Bank (AIIB). A shown how deeply the Chinese public’s distrust of large international consortium of contributors and the regime and anger at its tactics run. beneficiaries formed around the AIIB, despite U.S. The work of NGOs has also been drastically opposition. The new bank became another piece of curtailed by new laws, and foreign NGOs have an edifice that Xi was building as an alternative to effectively been pushed out of China. Whereas the liberal international order that developed after Chinese NGOs contributed immensely to relief World War II under U.S. leadership. Nonetheless, efforts after the 2008 Sichuan earthquake, providing as a chief beneficiary, Xi’s China has continued to healthcare and education to people not served by use that order—the World Trade Organization, government programs, citizen volunteers have International Monetary Fund, World Bank, and UN played only minimal and informal roles in helping system—to its advantage. their fellow citizens during the Covid-19 pandemic. As the Covid-19 pandemic has raged, and foreign Citizens who wished to aid Wuhan residents are nations (with the United States in the lead for its directed to the notoriously corrupt, party-run own parochial reasons) have come to hold China Chinese Red Cross. responsible, if not for the virus’s eruption, then certainly for its rapid spread, Xi has encouraged and International Reputation rewarded a rude, pugnacious, and threatening style of “diplomacy.” Dubbed “Wolf Warrior diplomacy” Xi Jinping has even more dramatically abandoned after a jingoist Chinese film, the practice has been Deng Xiaoping’s foreign policy of “hide your adopted by spokespersons in Beijing and Chinese strength, bide your time.” When beginning his emissaries abroad. In many countries—such as second term in November 2017, Xi delivered a Australia, France, and Sweden—this very antithesis marathon inaugural address to the 19th Party of traditional diplomacy has deeply offended host Congress laying out a vision to promote China’s nations and proved to be utterly counterproductive. style of governance as an alternative to Western China’s efforts to “control the narrative” through democratic models. manipulating the World Health Organization have To express this vision, a lexicon of new jargon only deepened international distrust of the country. soon flowed from Beijing. Deeds were coupled with words to create new Sino-centric institutions. New transportation corridors and communications links What to Expect radiating out from Beijing were developed under Xi Jinping no doubt believes that his strongman the Belt and Road Initiative (BRI), with Chinese rule has strengthened China and that, now free money and contractors to construct them. At a from term limits, he can go from strength to time when China was building a blue water navy strength. Yet, in all four areas covered—governance, and seeking to protect party-state assets abroad, economic policy, social cohesion, and foreign the BRI infrastructure offered opportunities for affairs—the Covid-19 pandemic has exposed and military bases and logistics hubs, another form of even exacerbated weaknesses in Chinese practice the “civil-military fusion” Xi had been advocating and policy under Xi. In some respects, China would at home. As Xi’s signature foreign policy initiative, be better off if Xi had left well enough alone, maybe BRI was written into the party charter and national

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tweaked a policy here or there, adapted flexibly to Covid-19 has already forced Xi to scrap the first slower economic growth and a changing external goal. Party propagandists have retired “moderately environment, but basically stuck to the policies well-off society” as they trumpet his leadership in that his predecessors had used to give China an crisis management and diplomacy. The extravagant unprecedented 40 years of rising prosperity. CCP birthday party planned for 2021—parades and cultural events akin to the National Day he staged in In the highly personalized autocracy that Xi 2019—will now be more subdued, although Xi will heads, his own position seems to be secure for the still be the star. It is 2022, however, that could become moment. Thanks to his systematic accumulation the date fatidique around which any opposition to of power, and the no-holds-barred anticorruption Xi might coalesce. Xi faced considerable criticism campaigns that cleared his path, Xi through his when he engineered the abolition of limits to his trusted lieutenants controls the party’s private party and state terms. Those critics have gone quiet, army, the PLA; the paramilitary force used to but they have not gone away. If in the run-up to the quell domestic disturbance, the People’s Armed 20th Party Congress Xi senses opposition building Police; and the internal security agencies. That among influential party heavyweights, perhaps some internal security apparatus not only supplies Xi’s within his own coterie, he might be tempted to create and other leaders’ bodyguards; it also monitors distractions or manufacture crises that only he could the communications and activities of Central then resolve. Committee members, senior army officers, and, of paramount importance to Xi, retired party elders Communist China’s history suggests that frictions like Jiang Zemin and Zhu Rongji. within the CCP’s high echelons can lead to policy confusion, domestic disorder, and, occasionally, Thus, “coup attempt” can be crossed off the provocative behavior outside China’s borders. While immediate agenda. But when the pandemic comes cause and effect cannot be proved, the Quemoy and under control and Xi attempts to rekindle the Matsu crisis in 1954, the 1962 Sino-Indian War, economy, pressures on his performance will increase. fighting on the Soviet border in 1969, and possibly Like speed bumps on a country road, obstacles lie China’s 1979 incursion into Vietnam come to mind. ahead on his calendar. Xi had imagined this year, 2021, and 2022 as a triad of triumphs: achieving the Chinese foreign policy has traditionally been party’s promised goal of making China “a moderately careful and cautious, and diplomatic bluster has well-off society”; celebrating the CCP’s centenary in given way to quiet solutions. But Xi is not the 2021; and Xi’s own coronation, for a third time, at traditional Chinese leader that the world has come to the 20th Party Congress in 2022. expect since Mao Zedong’s demise. To the contrary,

Xi already appears to be making provocative moves to take advantage of a world distracted by the pandemic, as well as perhaps to strengthen the party-political case for his indispensability.

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he has striven to emulate Mao in many respects and Offsetting the sophisticated statecraft in the has continued to pump up nationalism as a pillar Chinese tradition and the prudence of much for the party’s legitimacy. That can be combustible. Communist practice, Chinese folk idioms suggest Xi already appears to be making provocative what can happen when a leader feels threatened. moves to take advantage of a world distracted by “The pot’s already cracked, let’s break it”—a sort of the pandemic, as well as perhaps to strengthen nothing-more-to-lose nihilism—says one proverb. the party-political case for his indispensability. Another, equally graphic, describes the cornered dog Threats to Taiwan, aggressive actions in the South that goes crazy: “The mad dog jumps over the wall.” China Sea, the Hong Kong national security law, There just might be that odd gene in Xi Jinping. • and military clashes on the Indian border—these actions lift the vector of Xi’s foreign policies to more dangerous levels.

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